Andrew McCulloch

Andrew McCulloch joined Albourne in 2007 and is a senior portfolio analyst, partner and head of the U.S. region, leading the Connecticut office. Andrew oversees the portfolio construction, manager selection and risk management advice provided to a wide range of sophisticated family offices, foundations, endowments, insurance companies and public/private pension plans across liquid and illiquid alternative strategies. He has played a key role in several Albourne initiatives, including the development of the group’s strategy forecasts, and is an active member of the firm’s AI leadership group. Andrew earned a B.A. in economics from the University of Wisconsin–Madison and is a CAIA charterholder.

CIO: What issues do you expect to dominate financial decision making and the economy in the next 18 months to three years?

McCULLOCH: While there are myriad competing issues, I believe higher rates, the more volatile geopolitical environment and liquidity needs are among the most impactful in the near-to-medium term.

Higher rates continue to drive a preference for higher-volatility investments to improve capital efficiency, though governance remains a limiting factor. Some allocators are exploring portable alpha or beta completion. From an alignment perspective, we observe progress with LPs obtaining more fee-efficient partnerships, including adding risk-free rate hurdles.

This year’s tariff-related volatility underscores the need for thoughtful diversification by asset class, style and geography to insulate against future crises. While hedge fund strategies generally protected capital (Albourne’s Hedge Fund Indices were up 0.6% year-to-date through April 30, versus S&P 500 TR down -5%), we recently saw the U.S. dollar and Treasurys lack the diversifying impact they historically provided. Regional breadth has also been key, as allocators explore underweight areas such as Europe.

Liquidity management is paramount, especially for allocators with mature private market programs that leaned into the fundraising fervor of 2021; this year hasn’t produced the improved distributions that were anticipated. Pressure may be higher for established endowments and foundations facing greater tax/funding burden.

CIO: What changes are you making to your asset allocation advice, given the current state of geopolitics and the impact of trade tensions, inflation and rising interest rates?

McCULLOCH: We believe active management is especially important within both public and private alternatives, given the changeable environment. Taking a holistic view of risk across a total portfolio using a wide set of perspectives is a necessity.

In public alternatives, we believe tactical global macro strategies are well-suited to this environment. Traders in this strategy thrive in dynamic policy environments, especially trading around first, second and third order implications of shifts in trade and geopolitics. Meanwhile, especially within higher beta mandates and integrated approaches, we continue to see demand for stand-alone portable alpha and active extension strategies, along with greater regional diversification (e.g. Europe).

Within private alternatives, careful liquidity management via thoughtful pacing is a recurring priority as LPs navigate the path forward through lower-than-expected distributions. U.S. private equity expectations have been revised down relative to Europe, given the lower cost of capital and greater opportunity set overseas. The private credit outlook is unchanged but continues to attract interest, given its yield characteristics and, in some cases, the potential to diversify if we move into especially difficult economic conditions. Real assets and real estate expectations are modest, though certain areas still offer appeal, given their inflation sensitivity and some niche opportunities.

CIO: How has institutional consulting changed in the last five years and what do you expect to change over the coming five years?

McCULLOCH: The institutional consulting landscape has changed dramatically over the past five years due to consolidation and a shift toward more profitable (for the consultant) discretionary business lines. The majority of specialist advisers in alternatives now take discretion in some form, which we believe presents a material conflict. Allocators should be asking: Is my adviser’s consultancy subsidized by their investment mandates? Is my consultant exchanging coverage for capacity? Do I want to compete with my adviser for capacity and/or co-investment allocations? And: Am I willing to accept these potential conflicts? Our view has always been that in order to minimize these potential conflicts, a non-discretionary business model is necessary.

Elsewhere, retailization of alternatives is another ongoing theme among institutional consulting, despite material risks around asset/liability imbalances and the additional pressure these structures can create. Within private markets, evergreen funds have become an option for both high-net-worth investors and retail markets, in addition to institutions. These funds offer private market investment strategies that were traditionally available only to institutional investors. Navigating this domain involves complexities and potential pitfalls.

Two other areas of change include integrating AI in client-facing ways and leveraging customized routes to market to a fuller extent.